I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

I realise that weed has been legalised in a couple of States just recently but I was unaware that smoking it was a requirement before writing an economic position paper. But I’m left assuming that that is what Demos has done with their new paper, Retail’s Hidden Potential. It’s the most absurd piece of toker’s fantasy. The central claim is that if only all retail wages were raised to a minimum of $17.25 an hour then the economy would grow, more people would be employed and kittens would once again gambol happily in the Sun.

The notion that if you make something more expensive then people will use less of it seems to have passed them by. Fortunately I wrote about this very delusion some years ago. Back then it was Ezra Klein mulling over the idea that if Costco can pay all their staff $17 an hour then why can’t WalMart? To which I responded, well, they can:

Costco has sales of $51 billion, 110,000 employees (45% part time, similar to WalMart isn’t it?) and WalMart has sales (in North America) of $191 billion and 1.3 million associates. So Costco has sales of some $465,000 per employee and WalMart $147,000 per employee. That sounds about right to me, it’s been a number of years since I lived in the US but Costco is the place where you drag that 50lb bag of rice to the door yourself, right? WalMart is the one where cheery souls are employed solely to bid you good day as you enter? So, in theory, we could in fact get WalMart to pay the same as Costco by making similarly efficient use of labor: that is, firing between two thirds and three quarters of their staff.

Costco does indeed pay its staff better than Walmart does. They also employ fewer staff than WalMart does. This isn’t a happenstance, this is a consequence of them paying them more money. If you insist that everyone pays their staff like Costco does then everyone will staff their stores like Costco does. Which means millions of people being fired from the retail trade as everyone other than the actual cashiers is made redundant. Which is, when you think of it, an interesting way of boosting the economy.

The nonsense doesn’t stop there of course.

If large retailers raised wages to pay the equivalent of $25,000 per year for full-time, year-round work, GDP would increase by $11.8 to $15.2 billion and employers would create 100,000 to 132,000 new jobs.

Yes, we’ve already dealt with that one. When wages rise employers economise on the amount of labour they use. In my native UK (heck, even here in Portugal where wages are much lower) we have self-checkout counters these days. Machines are becoming cheaper than cashiers you see.

Using profits to pay for the wage increase would be a more productive use than the current trend towards stock repurchases . In the first half of 2012, large retailers earned over $35 billion in profits and paid out $12.8 million in dividends.8 Though unlikely, companies could choose to pay the full cost of a higher wage standard out of profits alone. Our study suggests that this use of profits would be more economically productive than the increasingly common practice of “stock buybacks”: retailers repurchasing public shares of company stock in order to boost earnings per share.9 Buybacks allow the firm to consolidate earnings; shareholders benefit by receiving higher earnings without paying taxes on dividends, and where compensation is tied to performance, executives get a hike in their paychecks. But share repurchases do not contribute to the productivity of the industry or add to economic growth, in contrast to a raise that benefits over 5 million workers and the firms where they are employed. In 2011, the top 10 largest retailers alone spent $24.8 billion on stock repurchases,10 billions more than the $20.8 billion all large retailers could have productively invested in their workers.

That’s a real facepalm argument. Truly worthy of a funny picture of a cat. So here is a funny picture of a cat.

Firstly, paying more to your workers is not an investment. That is a current expense. We are not, by paying the workers more in wages, adding to either the current or future productivity of the company. This is not investment.

Secondly, our wage bill has just gone up. But our production has not. Costs up and production static is a definition of a reduction in productivity, not an increase in it.

And thirdly, they seem to think that money returned to shareholders just disappears out of the economy. Which is complete argle bargle of course. What actually happens is that returns to past investments are either invested again in new projects, in which case someone gets hired by that new project. Or they are spent on consumption which means someone gets employed to make whatever is consumed. Further, given that it is indeed investment that creates the jobs and higher living standards of tomorrow we’ll be made richer by giving shareholders some of their money back, some of which will be reinvested in new business adventures.

And this little calculation is just too terribly amusing:

The cost of the wage increase amounts to $20.8 billion

OK, so retailers have to pay out $20 billion more a year. Every year of course. What do they get back for it?

Assuming that workers do not save money out of their wage income, the additional retail spending by employees and their families generated by the higher wage would result in $4 to $5 billion in additional sales across the retail sector in the year following the wage increase.

$5 billion in sales? In sales that is, not margins? Gee, so you mean that the sector is only going to have a $15 billion loss each and every year from now into the indefinite future? That’s such a bargain we’d like two, right?

I would like to think that this all stems from the legalisation of dope. But I see that it comes from Demos, who are based in New York. A state that hasn’t as yet given free reign to smoking doobies. So I’m afraid that I’m at a loss in trying to explain this.

Sure, we’d all like to make this a better world but isn’t it necessary to at least vaguely grasp the basics of how this one works first?

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